MEXICO CITY -(Dow Jones)- The International Monetary Fund said Tuesday that prospects for Latin America and the Caribbean remain promising, with economic growth expected to pick up pace in 2013 after a slight slowdown in 2012.
In its World Economic Outlook, the IMF said it expects economic growth for the region as a whole to slow to 3.7% this year from 4.5% in 2011, and to pick up again in 2013 to 4.1%.
Brazil, the region's largest economy, is expected to see growth increase this year to 3% from 2.7% last year, and speed up further to 4.1% in 2013.
In Mexico, the fund said it sees growth of 3.6% this year and 3.7% in 2013, "a slight slowdown but still above potential."
A cooling of domestic demand, a weaker external environment, and a slowdown in capital flows has helped to reduce the risks of overheating in countries in the region, the IMF said.
The region faces limited downside risk from Europe, and remains vulnerable to portfolio investment flows which put upward pressure on currencies.
Increased risk aversion from developments in Europe led to a temporary reduction in capital flows, but not a reversal of flows, which "has been a net positive for the region."
"Nevertheless, the region has had difficulty absorbing hot money in the past and this remains an ongoing source of vulnerability," the IMF said.
While financial spillover from Europe is expected to be limited, if the European situation leads to a generalized global economic slowdown, affecting demand for commodities, it could affect regional economies, particularly those in the Southern Cone, the IMF said.
This external risk is counterbalanced by the sway of the Brazilian economy, "which is driven predominantly by internal factors," the IMF added.
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In its World Economic Outlook, the IMF said it expects economic growth for the region as a whole to slow to 3.7% this year from 4.5% in 2011, and to pick up again in 2013 to 4.1%.
Brazil, the region's largest economy, is expected to see growth increase this year to 3% from 2.7% last year, and speed up further to 4.1% in 2013.
In Mexico, the fund said it sees growth of 3.6% this year and 3.7% in 2013, "a slight slowdown but still above potential."
A cooling of domestic demand, a weaker external environment, and a slowdown in capital flows has helped to reduce the risks of overheating in countries in the region, the IMF said.
The region faces limited downside risk from Europe, and remains vulnerable to portfolio investment flows which put upward pressure on currencies.
Increased risk aversion from developments in Europe led to a temporary reduction in capital flows, but not a reversal of flows, which "has been a net positive for the region."
"Nevertheless, the region has had difficulty absorbing hot money in the past and this remains an ongoing source of vulnerability," the IMF said.
While financial spillover from Europe is expected to be limited, if the European situation leads to a generalized global economic slowdown, affecting demand for commodities, it could affect regional economies, particularly those in the Southern Cone, the IMF said.
This external risk is counterbalanced by the sway of the Brazilian economy, "which is driven predominantly by internal factors," the IMF added.
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